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Trade Down With Del Monte?

Del Monte Foods may be one of the few single-digit stocks Cramer’s willing to recommend, especially during a recession. The Mad Money host has warned against the mystique of these so-called cheap investments before, but Del Monte’s got a solid business, he said Thursday.

DLM , trading at $7.06, is almost evenly split between human and pet food – 55% and 45%, respectively. The company’s number one in canned fruit and vegetables and number two in canned tomatoes and broth. All Del Monte’s pet-food brands are in the top five. Combine these leadership positions with the fact that canned food is about as “trade down” as you can get, and you can see why Cramer’s bullish on the stock right now.

Del Monte reported better-than-expected second-quarter earnings on Dec. 3, beating the Street’s estimates by 2 cents a share. DLM also upped its 2009 earnings and sales growth guidance. Company insiders have been buying shares as well, another positive sign that executives have confidence in the business.

Price increases – 3% in fiscal 2007, another 3% in fiscal 2008 and 9% expected this fiscal year – helped offset greater costs, but now that those costs are coming down Del Monte will pocket the difference. These wider margins could lead to an upside surprise, Cramer said, sending the stock higher at the next quarterly report.

Another important note: Thirty percent of revenue comes from Wal-Mart, the ultimate trade-down play. Wal-Mart is one of the few retailers that continues to have positive same-store sales despite this recession we’re suffering through.

Del Monte, trading at just 11 times earnings, is at the low end of its five-year average range of between 10 and 14 times earnings. If the stock works its way to that 14, then DLM will jump to $9, 30% higher than its current price.

Don’t pay over $7.50, though, Cramer said. And make sure you use limit orders in order to get the best price.

Join Cramer live in the studio for Mad Money: The State of Cramerica, a special town hall-style show on Wednesday, Jan. 21. Get your free tickets here!





Jim's charitable trust owns Wal-Mart.

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